Britain faces the prospect of a “hard” Brexit that threatens to further roil markets after a plunge in the pound to multi-year low points this week.
Following Britain’s shock referendum vote on June 23 in favour of exiting the European Union, it was not immediately clear what form the separation would take.
But Prime Minister Theresa May has hinted at a hard Brexit that would see Britain’s departure from the single market, or tariff-free zone, while also ending the free movement of people.
May yesterday said she wanted a Brexit deal that offered “maximum freedom” to operate in Europe’s single market from the outside as well as emphasising the need for control over immigration into Britain.
But European leaders have made it clear that any attempts to limit the influx of EU workers into Britain would mean ejection from the single market.
After May on Sunday set an end-March deadline for the country to start negotiations to leave the European Union, the pound has slumped to 31-year-lows against the dollar and three-year troughs versus the euro.
A study yesterday showed the cost of a hard Brexit for revenues in Britain’s financial services sector could total as much as £38bn ($48bn), risking the loss of up to 75,000 jobs.
A halt to British companies being able to sell services freely across the European single market would result also in a heavy loss of tax revenues, according to the study commissioned by lobbyists The CityUK.
According to Britain’s financial watchdog meanwhile, “passport” rights allowing 5,500 British-based financial firms to operate freely across the European single market are at stake.
Some 8,000 financial firms based elsewhere in the European Union also do business in Britain via passporting, and their rights are likewise threatened, the Financial Conduct Authority revealed last month.
“If Britain wants a hard Brexit, that can be announced now, without negotiation... but it would be dangerous not only for business in the UK but also across Europe,” said Mark Boleat, chairman of City of London Corporation’s policy committee.
“There would be the introduction of custom and other trade barriers and problems of movement of workers in and out the UK. There is little enthusiasm in business for a hard Brexit,” he said.
The International Monetary Fund on Tuesday cut its 2017 growth forecast for Britain, blaming Brexit, and warned that the damage could be greater if rocky negotiations lead to trade barriers.
But May insists that leaving the EU will provide an opportunity to “reshape” the nation and “bring power home”.
“This is our generation’s moment, to write a new future on the page and to bring power home and to make decisions here in Britain,” May said in a keynote speech at an annual conference of the ruling Conservative Party. Leaving the EU will also give people a chance “to take back control here in Britain, to build an outward-looking trading nation here in Britain,” she said. Her words sound confident but the signs so far have not been good.
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